“You’re really growing up!” your mom says tearfully as she takes you to open your first bank account. You’ve got a real job out of college, and it’s no longer kosher for dad to slip you 20s under the table at dinner. But there’s a lot to learn before you can get a handle on all the ins and outs of bank accounts.
Let’s define checking accounts
Checking accounts are bank accounts that allow you to easily access your cash, via debit cards or checks. Not bad, right? Additionally, checking accounts tend to have a lower interest rate than savings accounts (we’ll get to those next) and, therefore, you will likely not encounter many restrictions for your account. That is sort of the balance. While savings account have higher interest rates, they tend to carry a few restrictions on how often you can access your account, etc.
Let’s not be bamboozled by the banks’ fee-games
There are a few fees that banks will throw at you. Some are unavoidable unless you want to take your business elsewhere while some you can avoid. But it is always better to understand why you’re being charged than not understanding why you’re being charged. What’s that saying again? Understanding is bliss? Yeah … I think that’s it.
Maintenance Fees: Many checking accounts, especially at super-large banks, will have something called a maintenance fee, and it can run as high as $15-20 a month. Just one more reason to be money-smart and responsible with credit: Many banks will waive this fee for certain qualities in the client such as good financial records and whatnot. But then again, you’re just starting out, so we can’t really blame you for poor credit scores (or non-existent ones).
Overdraft Fees: This happens when your fool self spends money that you don’t have! Just kidding, we all do it. But we get charged for it through the artform of “the overdraft fee.” If art were horrible, that is. A feature called overdraft protection can cost you upward of $35 for just one individual fee.
How to choose the account for you
Well, there are a few ways , honestly. Of course, when you are looking to get a checking account, look for a bank that offers few or zero fees (probably few is more doable. Zero would be miraculous). Ask questions such as how comprehensive the account’s ATM network is. In other words, will withdrawing cash be easy from most anywhere you go, or will you have to travel to the middle of nowhere to get some cash for a bag of Doritos. Decent interest rates, obviously, would be nice, too, and low or no opening balance restrictions (find a bank that just trusts you).
Keep an eye out for sign-up bonuses — some banks will give you money for opening an account with them.
Now let’s define savings accounts
With savings accounts, you can store and save some cash while earning interest, too. It is also a good idea to get a savings account if you are planning to save for your future (read: you need to be saving for your future!).
Savings accounts are federally insured, and, like you might have expected, they are all about savings. What you might not have expected is that there is a major difference between hiding money from yourself in your fake beer can, and putting it in a savings account. Not only will savings-account-dough accrue interest, but it is less easily accessible than that beer can in your closet that is tempting you as we speak. Psychologically, that makes a difference. We cannot discount psychological tricks, however trivial they may seem. After all. we are psychological creatures. Savings accounts not only store money away for emergencies, but also can actually help you grow your wealth through interest. Your money is used by the bank to afford loans to other customers. Interest is the bank’s way to say “thank you very much for that.”
Note: Three perks of online banking
- Interest rates may be a bit higher due to the fact that they do not having to worry about constraints such as the management and upkeep of their brick-and-mortar branches.
- Online banks often have low initial deposit requirements and usually don’t charge monthly maintenance fees.
- Online banks tend to offer competitive annual percentage yields, or APYs, that are often well above 1 percent.
Accessing a savings account
This part can be tricky. Money in savings accounts is different from money in a checking account. Actually, it can be harder to access. The reason for this is that federal law limits the number of transfers or withdrawals from a savings account to six a month (though taking money out through a teller or ATM does not chip away at this monthly limit).
Yeah, it’s annoying. Then again, it could be a good thing. It may prevent you from ordering that burrito for the sixth night in a row and cook at home perhaps. You have tons of vegetables in your fridge! So yeah, it might be good that you can’t always access your money. Except when you need to pay bills. It’s a give and take, which brings me to the next point.
Takeaway/Why not both?
Savings accounts and checking accounts go together like Batman and Robin (or,you know,a less geeky metaphor). As a for example, this scenario shouldn’t be so hard to imagine: You find out that you have bills to pay — maybe your landlord is bothering you — and you need to access your checking account. But then a great aunt dies and leaves you $30 million that you want to deposit into a savings account that you have. (See? Not an unrelatable scenario at all!) But seriously, there is no logical reason not to have both, and there is no reason you shouldn’t be both paying your bills and saving at the same time. You need both accounts to build true financial independence for yourself!
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